Whatever you do “don’t do your own payroll”, I told Mary a potential client on Wednesday. We’ll look at some of the reasons why I think that’s good advice. Mary is an educated lady but isn’t a payroll specialist. But surely there can’t be that much to it? Oh, there is, and more. Let’s look at some of the problem areas and talk about our payroll superhero Izabela
- Benefit in Kind [BIK]
- Enhanced Reporting Requirement [ERR]
- PRSI Classes
- Payroll Superhero
- Why use CF
BIK
A benefit in kind is any non-cash benefit of monetary value you provide to your employee. Other names can include notional pay, fringe benefits, and perks. Some of the issues we see with clients who do their own payroll include the non-reporting of benefits. These would include medical insurance and BIK on the use of vans and cars.
Medical Insurance
The typical case here is the employer pays for some or all your medical insurance premiums for a year. If you are husband and wife directors of a small company and your company foots the bill, then there is BIK. If there’s BIK, then it should be on the payroll as notional pay. There will be a specific area to include this in the payroll software
We had a case where Revenue looked to deny a medical insurance credit for an employee. The employer, who had included the BIK through payroll, didn’t include it in the correct box. By not including it through payroll Revenue has lost out on the Income Tax, PRSI [employee & employer], and USC due. And what amount do you pay BIK on? Is it the gross premium or the net premium? The amount liable to BIK is always the gross premium before tax relief at source.
Where our client didn’t include the medical insurance on their payroll we included it in their tax return. At least they paid the taxes due on it although Revenue will have lost out on the employer’s PRSI.
Car or Van?
Answer Car. But the guy in the garage told me it was commercial, and it’s taxed as commercial. Remember the guy in the garage’s primary goal is to sell you the vehicle. And once you sign on the dotted line, he doesn’t give two hoots about your tax position! So, if you have a lovely SUV and it has seats in the back it’s a car. As such, it’s liable to BIK as a car.
A car also includes a crew cab and a jeep, unless they fall into the definition of a van, but does not include
- Motorbikes less than 410kgs
- Vans
- Vehicles not used as a private vehicle such as a hearse or lorry
I’m not going to get into the car calculations as I’ll do a separate blog at a later date but for the Car BIK calculation you need the
- Original market value of the car
- CO2 emissions
- Business mileage
Not only that but you’ll need to check the business mileage during the year. That is to ensure you are calculating the BIK at the right rate. And if your employer gives you a van it is liable if there is private use. Private use includes travelling from home to work and back again.
From 1 January 2023 to calculate the BIK on a van you use 8% of the original market value. Say, Nacho Foley bought a new van in January 2024 for €35,000. The Van BIK is
| Original market value | €35,000 |
| Less temporary reduction – 2024 | (€10,000) |
| Revised OMV | €25,000 |
| 8% of €25,000 | €2,000 |
| Cost to employee – 50% tax rate | €1,000 |
Enhanced Reporting Requirement
From 1 January 2024, a new enhanced reporting requirement [ERR] came in. You must report certain benefits paid to employees on or before you pay those benefits. These are
- Small benefit exemption
- Remote working daily allowance and
- Travel & subsistence
Revenue have adopted a softly softly approach to this in 2024, but the gloves are off in 2025. Take the small benefit exemption alone. How many thousands of employers will give vouchers to their employees in December? Those come under the small benefit exemption and employers must report them as part of their ERR.
“Revenue has operated a “service for compliance” approach throughout 2024, giving employers a generous opportunity to make whatever arrangements are necessary to comply fully with their obligations. Revenue expects that by now all liable employers will have put appropriate procedures in place to comply.
From 1/1/2025, employers found to have failed to comply, subject to normal compliance sanctions, including the application of penalties as appropriate. ERR however will form part of employer interventions post January 2025. ERR behaviour is an important risk indicator in relation to employer PREM behaviour and will be used to drive case selection for PREM interventions”
So, if you are not doing this or doing it but not doing it right then there will be penalties. Plus, if you are not doing it the likelihood of a Revenue review is higher. Most, if not all, payroll providers have adopted their packages to include ERR reporting. We give our team vouchers for Christmas. We included the value of these vouchers in our November payroll before we hand them over. The rule is that you must report the benefit on or before you pay or give the benefit.
PRSI Classes
An incorrect PRSI class is something we pick up from time to time when clients do their payroll. It can be common in smaller husband-and-wife companies. For example, a director who owns 100% of the company put himself on class A PRSI. That director should be on class S PRSI. Class A is an 11% employer charge while class S is a nil employer charge. On a salary of €80,000 that’s an unnecessary cost of €8,800.
Class A is for normal employees while Class S is for the self-employed. As an owner-director of your company, you are more akin to self-employed when you own 50% or more of that company. If you own less than 50% you could be either class A or S and that will depend on the circumstances.
All is not lost though. In many cases where we picked this up, we went to the Scope section to outline the circumstances of the case. This has resulted in refunds to the employer where the Scope section is happy that class S is the correct class.
Payroll Superhero
Our very own payroll superhero is Izabela. How do you define a payroll specialist? A good description is
The whisperer skillfully manoeuvres through the maze of tax codes and deductions with the grace of a diplomat, ensuring that every employee’s salary resonates with the harmonious tune of financial balance
Obviously, I got that from the internet as there’s no way I could come up with something as poetic and wordy as that.
Anyway, for fear of giving her a big head, I better stop there! Clients that use our payroll service couldn’t ask for a better lady to look after their employee’s pay and benefits. Plus, she’s always available to answer queries and come up with solutions when they come her way. And Izabela isn’t working in isolation. She’s working with the bookkeeping and tax people in the office. This helps to improve the reporting and a greater understanding of Revenue rules and obligations.
The benefit for our clients is that they can outsource a complex area to us. Plus, their employees are looked after. And the employees have a resource to help them with queries if there’s a change to their net pay.
HR
The human resources or HR aspect of payroll is as important as the tax piece. Payroll isn’t easy. Complex areas that would confuse me a lot include entitlements and calculations for
- Holiday Pay
- Public holiday
- Sick pay
- Maternity/Paternity/Parental leave
- Statutory redundancy
- Bike to work scheme
The interaction between social protection payments and payroll for maternity and sick pay schemes is tricky.
Why Use CF
Our payroll service is part of our bookkeeping service. But it can be a standalone service if it makes sense for us and the client. Irish Revenue must rank as one of the best and most efficient tax-collecting organisations in the world. The level of compliance across all tax heads in this country is 90% plus and over 95% for some taxes.
Companies pay tax on their profits at 12.5%. Why would you not do things right when only paying 12.5%? There is a fear of Revenue out there and with good reason. They have access to so much information and have huge powers. The odds are against you the taxpayer. It makes sense and is cheaper to do things right. Also, you want to keep your staff happy. If you do, don’t mess with employee’s pay. It must be right and on time, every time.
As a director of your own company, you are an employee too. Protect your employees and protect your business by outsourcing your payroll to CF. I’ll finish with this
“Behind every great man, there is a woman rolling her eyes-and a payroll department”
Start 2025 by outsourcing your bookkeeping and payroll to CF. If interested, start here
